EM Capital Flows Chartbook Stress from Within: EM Capital Flows Chartbook Charles Collyns Managing Director and Chief Economist October 2015

Non-Resident Portfolio Flows to Emerging Economies Rollercoaster Ride Non-Resident Portfolio Flows to Emerging Economies $ billion Source: IIF. Data embedded in chart.

Daily Equity and Bond Flows to EMs $ billion, all available countries T:\ECON\CapitalFlows\2015\1. January\Final Charts Source: National Sources, Bloomberg, IIF Calculations. Last Observation: Oct. 5th Note: Includes Indonesia, India, Korea, Thailand, South Africa, Brazil, and Hungary. Data embedded in chart. 3

Retrenchment of Both Debt and Equity Flows Source: IIF EM Monthly Portfolio Flows Tracker. Data on final slide.

Retrenchment Across Regions Source: IIF EM Monthly Portfolio Flows Tracker. Data on final slide.

Institutional Investors May Be Capitulating $ billion Source: EPFR, IIF. Data embedded in chart.

Diminishing EM Quarterly Capital Inflows Source: National Sources, IMF, IIF. Data on final slide.

Worst Year for EM Capital Inflows Since 2004 Source: IIF. Data on final slide.

First Year With Net EM Capital Outflows Since 1988 Source: IIF. Data on final slide.

Heavy Loss of EM Official Reserves Source: IIF. Data on final slide.

EM Growth Shock Source: IIF. Data on final slide.

RMB Shock Source: China Foreign Exchange Trading Center, Bloomberg, IIF. Data on final slide.

Who’s Been Hurt The Most? Source: IIF. Data on final slide.

Drought Likely To Be Protracted Source: IIF. Data on final slide.

Hoping for EM Growth Turnaround in 2016 Source: National Sources, IMF, IIF. Data on final slide.

China Capital Flows – Where Next? Source: SAFE, IIF. Data on final slide.

Watching the Fed Source: U.S. Federal Reserve, IIF.

Where’s the Inflation? U.S. Earnings & Employment Cost Index U.S. Beveridge Curve (2001-2015 Data) % oya job openings rate in % of total jobs (filled and vacant) LHS: T:\GUEST\GlobalMacro\US\4 Labor_Market\US wage inflation - ECI and Avg Hourly Earnings.xlsx RHS: T:\GUEST\GlobalMacro\US\4 Labor_Market\US unemployment rate and job openings rate3_HAVER.xlsm unemployment rate, % of labor force Source: U.S. Bureau of Labor Statistics. Source: Haver, Bureau of Labor Statistics, IIF. Data embedded in chart.

Fed and ECB: Crosswinds for EM Flows December 2016 Policy Rate Expectations Estimated Contributions to EM Portfolio Flows $ billion; cumulative contribution since 1/1/2013 percent per annum LHS: T:\GUEST\GlobalMacro\Saacha Mohammed\Fed and ECB Expectations_3.xlsx RHS: Ask Robin to Update Source: Bloomberg, IIF. Last Updated: September 2015. Source: IIF. Data embedded in chart. 19

Closer Global Connections EM Risk Betas Estimated Using EM MSCI and U.S. BBB Spread estimated % response to 1% increase in global risk aversion Source: Bloomberg, IIF. Data embedded in chart.

Who’s Most Exposed? Estimated Risk Betas vs. Share of Foreign Ownership of Stocks Risk Betas Estimated Using Bond Spreads vs. CA Balance percent of GDP, estimated for 2012-15 percent of GDP, estimated for 2012-15 Source: Bloomberg, IIF. Source: Bloomberg, IMF, IIF. Data embedded in chart.

Checking Central Bank Credibility percent Some above, some below target: some have more reason to ease, some less Above Target in End-2015 Below Target in End-2015 Source: Bloomberg, IIF. Inflation is IIF’s year-end forecast from September 2015 Global Economic Monitor Data embedded in chart. 22

Rise of Corporate Indebtedness Source: BIS, IIF. Data on final slide.

EM Non-Financial Corporate Debt percent of GDP, 2015Q1 Ask Arpitha Source: BIS, IIF. Data embedded in chart. 24 24

Cost of Currency Mismatches Source: BIS, IIF. Data on final slide.

Takeaways EM capital flows have been hit by home-made stress EM growth disappointments China’s policy trilemma Protracted drought more likely than quick rebound It can get worse. Watch out for: Further RMB surprises Return of the Fed hawks

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